Monday, September 07, 2009

Britain backs bankers bonuses.

We will fight them on the bonuses, we will fight them on the share options, we shall never surrender. The British and American governments are standing four square against France and Germany who want to cap banker's remuneration. How dare this continental anti-capitalist axis meddle with our bonus system! Bankers must be allowed to pay themselves whatever they can get away with or the entire system will collapse.

Really, this is beyond satire. What happened to all those promises to end the risk culture in the City, to ensure that failure is not rewarded and that greed should no longer dominate economic life? At yesterday's G20 summit of finance ministers, a Labour chancellor joined with Barack Obama's people to block a modest proposal on bonus reform from conservative governments in Germany and France. Yes, that's right. The supposedly right wing governments of Nicolas Sarkozy and Angela Merkel are proposing curbs on bankers pay that our Labour government and the great liberal Obama are trying to block.

How can Barack Obama be supporting this? Only last January he said that bonuses were "shameful" and had to be curbed. He was elected by millions of Americans who were disgusted with the greed and irresponsibility of Wall Street titans like Dick Fuld of now-defunct Lehman Brothers who paid themselves colossal salaries while destroying not only thier own companies the jobs of millions of Americans.

The French Finance Minister, Christine Legarde, claims that bonuses were a major cause of the financial crisis and that it is necessary to limit remuneration if history isn't to repeat itself. She is absolutely right, and is only echoing what the Financial Services Authority has been saying and what the prime minister, Gordon Brown, promised in April. It is obscene for banks like RBS to be paying themselves multimillion bonuses when they have been rescued by hundreds of billions of tax-payer's money. Yet, as BBC's Newsnight revealed, RBS has been handing £2m win-or-lose bonuses to new staff. It's chief, Stephen Hester is paying himself £9.7 million. All the banks are paying colossal bonuses again as they coin it in from government subsidies.It's fine for high rolling hedge funds to award themselves huge salaries – when they cock up they go out of business. It is moral and economical madness for largely state owned retail banks, who are only in existence because of public funds, to be playing the same game.

Alistair Darling's argument that it is not worth trying to cap bonuses because bankers will get round them is a cop out, like saying there is no point in levying income tax because people will evade it. So is the argument that we may lost the 'brightest and the best' in the City of London because they will move to countries where bonuses are still paid. Not if there is concerted international action they won't – yet it is precisely such action that the British and American governments are trying to block. Anyway, banking is not a difficult activity, when you are borrowing from the Bank of England at practically zero interest rates and then loaning it out at 12%. Anyone can make money doing that, especially if the taxpayer has taken on the burden of all your bad debts. If they want to go to the Cayman Islands, let them – they've done enough damage already.

Every serious commentator on the financial crisis ,from the FSA chairman, Lord Turner, to the Financial Times columnist, Martin Wolf, agrees that the paying of excessive short term bonuses encouraged excessive risk taking in the City. When bankers are engaging in deals that could make them independently wealthy within a couple of years they are hardly going to be bothered about the long term health of the financial institution they are working for, let alone the wider economy. They take the money and run. Like Sir Fred Goodwin - who destroyed his bank, handed the losses to the government and then walked away with a pension pot of £13m..

But where is the outrage? It seems only yesterday that the Sun was attacking “scumbag millionaires”. The Treasury Select Committee has called for an end to the bonus culture. ~Even George Osborne, the shadow secretary, called last month for an end to bonuses in state subsidised banks. Every opinion poll on the subject has shown that the voters are disgusted by the bonus culture. This has nothing to do with the politics of envy let alone Marxism. What the bankers are doing has nothing whatever to do with private enterprise. If the free market had been allowed to function all of them would be out of a job.

About Me

Iain Macwhirter is the award-winning political columnist for the Herald and Sunday Herald. He has been a political broadcaster for over 20 years, in Westminster and Holyrood, and is former Rector of Edinburgh University.